2019 (5) TMI 325 - AT - Central Excise

Clandestine removal - mismatch between production figure of LPG shown in ER1 returns and financial report for the financial year 2004-05 - HELD THAT - Admittedly appellant is a Public Sector Company engaged in the manufacture of LPG and it claims that the difference of production shown in two different statements was due to non-taking of captive use of LPG into account as well as segregating reprocessing of certain quantity of LPG which were not up to the standard maintained for such production. Respondent-department was appraised of those facts but it had not taken the same into consideration. Show-cause notice does not reveal offering of any such explanation by the appellant but as reveals from Order-in-Original given at para 20, production figures given in ER1 return was taken whereas in the removal column, three type of figures are shown including removal of reprocessed quantity and there is a reference in the same paragraph that quantity reprocessed is accounted separately in ER1 return - law requires that clandestine removal is to be proved beyond all reasonable doubts. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Challenge to duty demand based on differential production quantity shown in ER1 returns and annual accounts for the financial year 2004-05 due to alleged clandestine clearance.

Analysis:
1. Facts and Background: The appellant, a Public Sector undertaking, contested duty demand arising from discrepancies in LPG production figures between ER1 returns and financial reports for the financial year 2004-05, alleging clandestine clearance. The duty demand of ?23,82,576/- along with interest and penalty was proposed by the show-cause notice dated 31.03.2009, which was later confirmed through adjudication.

2. Appellant's Contentions: The appellant argued that the higher production figures in the financial report were due to unaccounted LPG reprocessing and captive consumption for fuel extraction, resulting in a negligible difference. Citing various case laws, the appellant emphasized that mere discrepancies in production figures do not prove clandestine removal unless concrete evidence like purchase records, electricity usage, sales transactions, and fund flow are presented. The appellant stressed on the principle that suspicion cannot replace proof, especially considering the appellant's status as a Public Sector Undertaking.

3. Respondent's Arguments: The respondent supported the Commissioner (Appeals)'s decision, asserting that any detected short levy during audit implies suppression, warranting extended period invocation. Referring to specific judgments, the respondent contended that only inputs directly related to final product manufacturing should be considered, and the Commissioner (Appeals)'s order should not be interfered with.

4. Tribunal's Decision: After hearing both sides and examining the case records, the Tribunal noted the appellant's explanations regarding captive consumption and reprocessing of LPG. The appellant submitted a certified reconciliation statement during the appeal, supporting their claims. The Tribunal found that the respondent had not considered these explanations and accepted the reconciliation statement as evidence, despite the absence of a formal order.

5. Critical Analysis: The Tribunal observed discrepancies in the show-cause notice and the Order-in-Original regarding the appellant's explanations and the treatment of reprocessed quantities. The adjudicating authority doubted the appellant's claims due to record-keeping issues, concluding clandestine removal without requiring further proof. However, the Tribunal disagreed with this approach, emphasizing the need to prove clandestine removal beyond reasonable doubt, as per legal precedents and established principles.

6. Final Decision: Consequently, the Tribunal allowed the appeal, setting aside the order of the Commissioner of Central Excise (Appeals)-II, Mumbai dated 22.12.2010. The decision was pronounced in open court on 02.05.2019, in favor of the appellant.